2020 (2) TMI 578 - HC - Income Tax

Exemption u/s 11 - Approval to the respondent-society u/s 80G - the amount in FDRs had enhanced - HELD THAT - From the averment of the society before the CIT, it was evident that out of total 350 cows, only 20-30 cows were milking. The doubt raised by the CIT was as to how 20-30 cows could produce milk worth ₹ 16,54,634/-. The said doubt was baseless as the CIT was swayed by the figure. If the figure is roughly worked out to the daily amount and if an average price per litre milk is taken as ₹ 40/-, the production would come to 114 litres of milk a day. The objection that the amount in FDRs had enhanced will not enhance the case of the revenue. There is not even an iota of evidence to establish that the amount was not being utilised for the aims and objects of the society but for some other purpose. The amount only gives a protection to the society for daily needs, if the occasion so arises that there is scarcity of funds as the society has almost 350 cows to take care and to feed. It cannot be ruled out that such a cushion may be required considering the nature of the work done by the society. The contention that the society had diverted itself into commercial activities is belied from the ratio of milking and non-milking cows. Out of 350 cows, only 20 to 30 cows were milk yielding. The ratio would be 32 3. The said ratio is a pointer against the plea of revenue. There cannot be any objection if a society while achieving its aims and objects is able to generate some funds so that its daily expenses can be met of its own. There is no quibble on the proposition that registration u/s 12AA itself would not be enough for approval under Section 80G of the Act. The Tribunal has only considered that aims and objects of the society have been found genuine while granting registration u/s 12AA and for granting approval u/s 80G the reasons have been recorded and the denial of approval not sustained. Learned counsel for the revenue has neither been able to show that the view taken by the Tribunal is erroneous nor any material on record is shown to hold that the order of the Tribunal is legally unsustainable. - Decided against revenue

Summary

Issues:
1. Approval under Section 80G of the Income Tax Act, 1961
2. Disregarding the society's main emphasis on generating income and accumulating surpluses
3. Disregarding the society's involvement in commercial activities
4. Interpretation of Section 12AA and Section 80G of the Act
5. Allegation of the Tribunal's order being contrary to the evidence and material on record

Approval under Section 80G of the Income Tax Act, 1961:
The appeal was filed against the Tribunal's order directing the Commissioner of Income Tax to grant approval to the society under Section 80G of the Act. The society was established with the aim of serving old, ill, and lame cows. The CIT rejected the approval application, alleging that the society had diverted from its objectives by generating income and accumulating surpluses. However, the Tribunal allowed the appeal, stating that there was no evidence to prove diversion of funds from the society's aims and objects. The registration under Section 12AA of the Act was considered continuing, leading to the direction to grant Section 80G approval.

Disregarding the society's main emphasis on generating income and accumulating surpluses:
The revenue contended that the society's significant amount in Fixed Deposit Receipts (FDRs) and involvement in commercial activities were overlooked by the Tribunal. However, the Court found that the society's FDRs served as a financial cushion for its daily needs, given the substantial number of cows it had to care for. The Court dismissed the revenue's objection, emphasizing that there was no evidence indicating the funds were misused.

Disregarding the society's involvement in commercial activities:
The revenue argued that the society had engaged in commercial activities, deviating from its charitable objectives. The Court, however, noted that the society's focus on milking cows and the ratio of milk-yielding to non-milking cows contradicted this claim. The Court highlighted that generating funds to meet daily expenses while fulfilling charitable aims was permissible.

Interpretation of Section 12AA and Section 80G of the Act:
The Court clarified the procedures outlined in Section 12AA for trust registration and Section 80G for donation deductions. Registration under Section 12AA did not automatically guarantee approval under Section 80G. The Tribunal's decision to grant approval was based on the genuine aims and objects of the society, which the revenue failed to disprove.

Allegation of the Tribunal's order being contrary to the evidence and material on record:
The revenue alleged that the Tribunal's order was contrary to the evidence and material on record, presenting a challenge to the approval granted. However, the Court found no merit in the revenue's contentions, stating that the Tribunal's decision was legally sound and supported by the society's genuine objectives. No substantial question of law was found, leading to the dismissal of the appeal.

The judgment upheld the Tribunal's decision to grant approval to the society under Section 80G of the Act, emphasizing the importance of genuine charitable objectives and proper utilization of funds. The Court rejected the revenue's arguments regarding the society's financial activities and commercial involvement, highlighting the society's compliance with its stated aims and the necessity of financial stability for its operations. The interpretation of relevant sections of the Act clarified the registration and approval processes for charitable institutions, underscoring the need for alignment with charitable purposes.